A reverse mortgage, also called a conversion mortgage, allows homeowners to pledge the equity value of their home and derive an income out of it. Reverse mortgage loans are available to individuals over 62 years of age. These loans help homeowners meet some immediate cash requirements while residing in their own home. In a regular mortgage, the property holder pays the bank monthly payments. But in a reverse mortgage, the lender makes payments to the homeowner.

There are no restrictions on how one can use the profits. The payments you get are tax-free. People generally utilize reverse loans to complement retirement funds, upgrade houses, take vacations, pay off other debts, or even prevent foreclosures. In case the applicant wants to shift to a different place within the first 5 years of the loan term, reverse mortgages can become very expensive.

The major categories of reverse mortgages include federally insured reverse mortgages, single-purpose reverse mortgages, and proprietary reverse mortgages. The first type is insured directly by the federal government, and the last two are provided by groups licensed by the government, and banks or private financial mortgage lending organizations. Each type has different advantages and disadvantages that need to be measured while applying for a reverse mortgage.

A single-purpose reverse mortgage, the lowest-cost type of reverse mortgages to attain, can only be used for one specified purpose. Examples include property tax deferral (PTD) mortgages and deferred payment loans (DPLs). A federally insured reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), provides the largest total cash benefits of all the reverse mortgage options. A proprietary reverse mortgage is more expensive than other types, and its major benefit is the higher home value limits.

A reverse mortgage offers financial security while you enjoy the comfort of your home after retirement. However, these long-term mortgage plans must be selected with utmost care. The companies and lenders which handle regular and multiple mortgages provide reverse mortgages. Customers can purchase the loan either as a lump sum or a credit line. Before selecting a plan, it is wise to consult a financial advisor who can provide you an insight on the pros and cons of a reverse mortgage.